Obama To Hu: Correct Trade Imbalance

The White House says President Barack Obama has told Chinese President Hu Jintao that global trade imbalances must be corrected.

White House press secretary Robert Gibbs says the president called Hu on Friday and both men spoke of their intention to build a "more positive and constructive" relationship between their countries. Gibbs says Obama told Hu he looks forward to meeting with him.

Obama's call follows criticism of China's currency policies by Vice President Joe Biden and Treasury Secretary Timothy Geithner and a "buy American" provision that has been attached to White House-backed stimulus legislation.

The U.S. trade deficit with China is the largest ever recorded with a single country and recently has been setting new monthly highs. U.S. manufacturers contend China has slowed the pace of currency reform to cope with a global economic downturn that threatens to harm its export-driven economy.

China recently surpassed Japan as the U.S. government's largest creditor. Any decision by Beijing to move its money would deal a dizzying new blow to an already tottering American economy. Yet relations between China and the new Obama administration are off to a rocky start.

For now, Beijing continues to loan Washington money by buying Treasurys and other U.S. government securities, helping to finance the ever-growing U.S. budget deficit. But there are signs its leaders may be considering trimming these holdings as that country experiences its own economic slowdown. Strains between the two economic powerhouses seem to be growing with the change in administrations.

The latest irritants are a the "buy American" provision the criticisms of China's currency policies.

Geithner accused Beijing of "manipulating" its currency during his Senate confirmation process.

Biden, interviewed Thursday by CNBC, said that the Obama administration would "say to China - which occasionally the last administration was reluctant to do - 'You're a major player on the world scene economically, and you've got to play by the rules that everybody else plays by."'

Their comments followed a move by Chinese censors to silence part of a live broadcast of Obama's inaugural address when he spoke of the U.S. struggle against communism.

China has allowed the value of its currency to rise by 21 percent over the past two years. But American manufacturers complain the Chinese yuan is still significantly undervalued, making Chinese goods cheaper for U.S. consumers and American products more expensive in China.

Analysts say the economic downturn in China has led leaders to put their top emphasis on protecting the domestic economy, including establishing a $586 billion stimulus plan to build new railroads, bridges and dams. China has already begun paring back its holdings in Fannie and Freddie bonds and is keeping tighter controls on its stash of Treasurys.

Obama said Friday that a 3.8 percent shrinkage in the nation's gross domestic product in the final three months of 2008 shows the recession is deepening. He said he was pleased the House passed the stimulus package and "I hope we can strengthen it further in the Senate." He did not mention the controversial buy-American provision.

Despite its trade deficit with countries like China, U.S. exports last year were one of the few bright spots of a dire U.S. economic picture.

Trade restrictions have a history of inviting tit-for-tat retaliatory trade penalties on U.S. goods, and many economists and historians blame protectionist measures adopted in the 1930s for deepening and prolonging the Great Depression.